Paid-up capital limit for airlines raised

[Abbas Ali]

By IQBAL MIRZA

KARACHI (May 17 2006): To check the mushroom growth of airlines in the private sector, the limit of paid-up capital has been raised from Rs 100 million to Rs 250 million in the 2006 National Aviation Policy (NAP).

The policy has been cleared by the Prime Minister and now awaits cabinet approval for its implementation. The NAP-2006 would ensure that only serious parties with strong financial background enter the airline business.

The Civil Aviation Authority (CAA) had drawn up the new policy (NAP-2006) after taking all the stakeholders into confidence. Their suggestions, which were not in conflict with consumer interests, aviation safety, security and growth of aviation industry in Pakistan, had been incorporated in the NAP-2006, a highly placed source in the CAA told the Business Recorder here on Tuesday.

When asked to dilate on the reasons that led to the bankruptcy of Hajvairy, Bhoja, Safe Air and Raji airlines, he said that running an airline was a capital intensive business. Those operators did not have necessary finances to purchase even a single 150 seater modern aircraft like Airbus A320, which cost 60 million dollars. He said three out of four defunct airlines had only one wet-leased foreign registered Russian aircraft, which they operated only for a few months before suspending the operations.

They did not pay to any one, even to their employees, the aircraft owners, the CAA and fuel suppliers, he added.

"The incidence of airlines going bust appears to have become a world-wide phenomenon. The list includes: USA 144, UK 100, Canada 52, Russia 35, Germany 44, France 42, Italy 30, Belgium 16, Australia 20, China 13, Japan 12, Egypt-nine and India- eight," he added.

Talking about the foreign registered wet-leased operations under Aircraft, Crew, Maintenance and Insurance (AMCI) in Pakistan, he described them as a curse and a hurdle in the way of smooth growth of aviation industry in the country. It compromised aviation safety, security and job opportunities in Pakistan.

Until recently, Pakistani pilots were forced to take up jobs other than flying and the flying clubs were almost closed for want of trainees. Wet leasing also compromised passenger insurance and third party liability that led to undercutting the national carrier by private airlines on domestic and international routes.

He said the NAP-2006 had addressed this issue and, like other countries, it had proposed to limit the operations of foreign registered aircraft by Pakistani airlines on domestic and international sectors. He went on to explain that one of the shortcomings of previous policies was a vague provision on operations of foreign registered aircraft by Pakistani operators on domestic and international routes by way of wet-lease.

Domestic market, the source said, was the most protected market that was guarded jealously by countries all over the world. Access to international routes was allowed through a system of bilateralism and on the principle of reciprocity, he added.

The provision of wet-lease operations in the existing policy paved way for the owners of foreign registered old and junk aircraft to penetrate not only Pakistan's domestic market, but also the international market.

It also made possible for the Pakistani operators to purchase these old aircraft at throw away price from European markets, register them in some Central Asian state like Kyrgyzstan, hire foreign pilots and maintenance facilities, even arrange fake passenger insurance before operating them in Pakistani market.

The source further elaborated that Pakistani private airlines paid to an offshore company an average amount of three million dollars per annum at the rate of 1,000 dollars per hour of flying for operating an old and junk aircraft like Boeing 737-200, that itself cost no more than half a million dollars.

He pointed out that a Pakistani private airline, having a fleet of five foreign registered Boeing 737-200 aircraft, transferred abroad at least 15 million dollars per annum on the pretext of payment for wet-lease operations.

At the same time, some private airlines were showing operating losses in their account books for the last 14 years, he said, adding it was one of the worst examples of corporate frauds being done in the aviation industry of Pakistan.

Similarly, he said that job markets in Pakistan belonged to Pakistanis and not foreigners. "It is unfortunate that a country like Pakistan, which should have been exporting pilots to other countries, had to import pilots.

"This situation was basically created by private airlines about a decade ago when pilots from Central Asian Republics became available at very cheap rates. As a result, Pakistani pilots were rendered jobless and the private carriers, who had replaced them with foreign pilots did not pay them their salaries even up to three years," he said.

He said: "Foreigners working in the fields of science, education and medicine are welcome as they are transferring expertise to locals, but in the case of pilots, we have the expertise and manpower of high calibre available here and, therefore, engaging foreign pilots amounted to criminally wasting money on them."

The source said that Airblue, which commenced operations, a little less than two years, was now the largest private airline, having most modern fleet being flown by Pakistani pilots. The airline had also registered its fleet in Pakistan. However, the policy did permit induction of foreign pilots until June 2008," he said.

"To develop self-sufficiency, Pakistani co-pilots have to be inducted to overcome the shortage, if any. Airblue has recruited and trained about 50 pilots over a period of last two years. There may be a shortage of airline captains in Pakistan, but there is no dearth of co-pilots. Airlines have been permitted to employ foreign captains up to June 2008," he said.

On the issue of handling at airports, the sources regretted that some of the private airlines had been using agriculture tractors for towing aircraft at the apron. This not only lowered service standards, but also created safety hazards. "Only companies of repute, having standard equipment, could be permitted to handle aviation activities at the airports," he said.

Source: Business Recorder